Retirement Plan Committee Charter language may be exactly what your plan needs. Does your retirement plan committee charter even exist? When is the last time it was reviewed or updated by you or a third party professional?
It’s crucial to understand the importance of a Committee Charter especially if you do not have one. If you do have one it is best to check and verify that it hasn’t become outdated. Why? Because not having one, or working with one that isn’t up to date could expose your retirement plan committee to legal risks or unnecessary costs.
Although the Employee Retirement Income Security Act (ERISA) – the primary regulation that governs employer-sponsored retirement plans – doesn’t require retirement committees to have a charter, it is considered an industry best practice. The charter’s purpose is to provide guidance on how fiduciary compliance will be carried-out. It also describes actions permitted by the appointed retirement plan committee members when overseeing the plan.
Retirement plan-related lawsuits are being filed in record numbers, and that trend shows no signs of abating. Therefore, it’s important for retirement plan committees to have a clearly articulated retirement committee charter. This helps protect fiduciaries against liability in the event of a lawsuit or audit. The retirement plan committee charter should clearly outline the roles and responsibilities of each committee member. It will detail policies and procedures to show that the retirement plan committee is adhering to compliance protocol.
A retirement plan committee charter should:
- Establish the investment committee. Outlining the plan’s investments, should occur in accordance with the plan’s investment policy statement (IPS). The IPS describes the plan’s investment strategy and objectives. The IPS references rules for fund selection, monitoring, and the responsibilities of plan fiduciaries.
- Establish meeting procedures. Describe how often the committee will meet, and who will take minutes, etc. Note – Meeting minutes can be used by auditors, federal regulators, the IRS, and the courts. They are considered legal documents.
- Determine which fiduciaries are responsible for interacting with service providers. This person should be the “front line” when it comes to investment performance and fees and ensuring ERISA and fiduciary standards are being met.
- Identify administrative duties. Administration is among the most important duties of retirement plan committee members because these tasks must be prudently managed. They include overseeing remittance of participant contributions, managing plan document, and amendments. Also included are reporting to a company’s directors, coordinating participant education and communication, and benchmarking plan providers’ fees and services for reasonableness.
Due to its complex nature, the development of the retirement committee charter may be best outsourced to an experienced retirement plan advisor. Or it can be drafted by an expert consultant or attorney. Charter reviews frequently take place during the second or third quarter, well in advance of open enrollment season.
The importance of an up-to-date, accurate retirement plan committee charter cannot be overstated. Having this document in place is critical to ensure the committee is acting in the best interests of the plan and participants. It also helps mitigate legal risk.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.